Thai military plans three-pronged economic overhaul

A view of the port of Bangkok, Thailand. The country plans to create an Eastern Economic Corridor, which will be connected by high-speed rail networks and highways, and will involve the modernising of deep-sea ports.PHOTO: REUTERS

Infrastructure, industrial base and agriculture targeted to build new foundation for economy

Latest data from Thailand paints a grim picture of an economy struggling to shake off the cloud of uncertainty after two years of military rule, with sluggish exports and weak private spending remaining a drag on the kingdom's fragile recovery.

But Dr Kobsak Pootrakool, the top economic adviser to the military government, is not overly concerned, arguing that economic prospects are actually looking up, with rising confidence amid planned reforms.

"It is not all about GDP (gross domestic product) numbers. Our main focus is putting in place reforms to provide a new foundation (for the economy)," he told The Straits Times in a recent interview that offered fresh insights into the military's proposed overhaul of the Thai economy.

Dr Kobsak, who is chief lieutenant to the military's economic point man, Deputy Prime Minister Somkid Jatusripitak, said that the overhaul is three-pronged: an infrastructure build-up to boost connectivity, a restructuring of Thailand's industrial base to move it away from equipment manufacturing operations to higher value-added industries, and a sweeping reform of the vast agricultural sector.

The central platform of the overhaul involves the creation of a so-called Eastern Economic Corridor, covering the already established industrial provinces of Chon Buri, Rayong and Chachoengsao.

This zone will be connected by high-speed rail networks and highways, and will involve the modernising of deep-sea ports in the area to establish Thailand as a regional hub for trade. A ferry network that will link Chon Buri province with Phetchaburi in the south is also in the pipeline to improve connectivity in the Gulf of Thailand.

THREE FOCAL POINTS

1 An infrastructure build-up to boost connectivity.

2 A restructuring of the country's industrial base to move it away from equipment manufacturing operations to higher value-added industries.

3 A sweeping reform of the vast agricultural sector.

The proposed infrastructure build-up carries an initial price tag of US$8.5 billion (S$11.5 billion) through government-led spending, but this is expected to jump to US$40 billion over the next decade with the zone earmarked to attract new industries such as airplane maintenance and petrochemical processing facilities. The aim is for it to become the logistics hub to serve the neighbouring economies of Cambodia and Vietnam.

Dr Kobsak said: "The fact is that we have been distracted by political infighting for a long time and failed to invest in infrastructure and upgrading technological fronts of the economy. This is the target of our policies."

The stakes are high for South-east Asia's second-largest economy, after Indonesia, and for a military government still trying to secure domestic and international acceptance.

Thailand has seen its once-envied export sector slump due to the global slowdown and much-needed foreign direct investment diverted to other lower cost centres, such as Vietnam. Official figures show foreign direct investment plunged to 11.8 billion baht (S$457 million) in the first six months of this year, down nearly 90 per cent compared with the previous period and a level not seen since 2011, when severe flooding caused serious damage to the economy.

The government expects the economy to expand by more than 3 per cent this year. While this represents a slight improvement over last year, the figure is widely seen as listless when compared with Thailand's peers, such as the Philippines and Vietnam, where growth in 2016 is expected to hit close to 6 per cent.

"Infrastructure development is good and we think this time is different because the military is going to make it happen," said Mr Tim Leelahaphan, chief economist at Maybank Kim Eng Securities in Bangkok. But, like many other economists, he is reluctant to comment on other planned structural reforms - particularly the overhaul of the country's industrial base and its agricultural sector - saying that they were too far away in the distant future to say one way or the other "because of the politics".

Thailand is set to hold elections next year and political analysts note that the make-up of the new government under the country's soon-to- be ratified Constitution remains unclear. Mr Leelahaphan said: "The reform agenda will fall on the shoulders of the newly elected government to pursue and so, the focus for the coming year will be politics."

Thailand's new economic architects acknowledge that the biggest challenge will come when dealing with the third plank of the economic restructuring: reform of the agricultural sector.

"Thailand has an agriculture base but is not agro-based," said Dr Panitan Wattanaygorn, who is the adviser to Thailand's second Deputy Prime Minister Prawit Wongsuwan, in a recent interview.

"We need to create a manufacturing sector that is based on agriculture and it will be painful because many farms that are unproductive will have to be closed."

The agricultural sector reform is crucial because it carries a very strong political dimension.

About a third of Thailand's 70 million people are linked to the sector, a powerful voter base, which explains why successive governments have been reluctant to push ahead with radical changes on agriculture.

Private economists also blame Thailand's focus on manufacturing at the expense of its agricultural sector for the sharp disparity between rural and urban incomes, resulting in the worsening of the social and political divide witnessed over the past two decades.

"We need to address this imbalance and strengthen the domestic and rural economic sectors," said Dr Kobsak.

The Straits Times

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